Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 18.10, Problem 1ST
To determine
Relationship between tax rate and tax base.
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Economist Arthur lagger famously pointed out that, in some cases, income tax revenue can actually go up when tax rates go down. Why might this be the case?
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- How does a "progressive tax system" differ from a "regressive tax system" in terms of income distribution? A) A progressive tax system imposes higher tax rates on higher incomes, while a regressive tax system imposes higher tax rates on lower incomes. B) A progressive tax system imposes a uniform tax rate on all incomes, while a regressive tax system adjusts rates based on economic cycles. C) A progressive tax system reduces income inequality by taxing higher incomes at higher rates, while a regressive tax system can increase inequality by placing a heavier burden on lower incomes. D) A progressive tax system exempts lower incomes from taxation, while a regressive tax system taxes all incomes at the same rate.arrow_forwardTAXES Taxes are any governmental action that reduces the real income of wage-earners as well as non-working Americans. The action can also reduce the profit of business. Taxes act as a leakage from the GDP – Income Stream and will reduce both income and GDP over time. Think of taxes…. Did you buy gas on the way to school? Did it include a tax? When you purchase clothing at the mall, how much is the tax? Driver’s License? Fishing License? Hunting License? Tax on Concert Ticket? Tax on Airline Ticket? Are taxes withheld from your paycheck? Income, FICA and state or local taxes Paying bridge tolls? Taxes on personal or real property? Tax on new tires? Alcohol? Cigarettes? Imports with tariffs? Do all these taxes and licenses reduce our disposable income? Why do we sacrifice and pay these taxes? What are the ways that government helps us?arrow_forwardGovernment is considering a policy change to stimulate the economy by encouraging private consumption by reducing sales taxes. The loss of tax revenue will be made up by increasing taxes on corporate profits and excess savings. What are the short- and long-term effects of such a change?arrow_forward
- What role taxes policy plays in determining the GDP or national income in an economy? Explain with numerical examples?arrow_forwardConsider the economy of Cocoland, where citizens consume only coconuts. Assume that coconuts are priced at $1 each. The government has devised the following tax plans: Plan A • Consumption up to 1,000 coconuts is taxed at 35%. • Consumption higher than 1,000 coconuts is taxed at 20%. Plan B • Consumption up to 2,000 coconuts is taxed at 10%. • Consumption higher than 2,000 coconuts is taxed at 25%. Use the Plan A and Plan B tax schemes to complete the following table by deriving the marginal and average tax rates under each tax plan at the consumption level of 700 coconuts, 1,500 coconuts, and 2,500 coconuts, respectively. Consumption Level Plan A Plan B (Quantity of coconuts) Marginal Tax Rate Average Tax Ratearrow_forwardConsider the economy of Cocoland, where citizens consume only coconuts. Assume that coconuts are priced at $1 each. The government has devised the following tax plans: Plan A • Consumption up to 1,000 coconuts is taxed at 50%. • Consumption higher than 1,000 coconuts is taxed at 20%. Plan B • Consumption up to 2,000 coconuts is taxed at 10%. • Consumption higher than 2,000 coconuts is taxed at 25%. Use the Plan A and Plan B tax schemes to complete the following table by deriving the marginal and average tax rates under each tax plan at the consumption levels of 600 coconuts, 1,200 coconuts, and 2,500 coconuts, respectively. Consumption Level Plan A Plan B (Quantity of coconuts) Marginal Tax Rate Average Tax Rate Marginal Tax Rate Average Tax Rate (Percent) (Percent) (Percent) (Percent) 600 1,200 2,500 Complete the following table by indicating whether each…arrow_forward
- Congress would like to increase tax revenues by 5.5 percent. Assume that the average taxpayer in the United States earns $56,000 and pays an average tax rate of 20 percent. Required: If the income effect is in effect for all taxpayers, what average tax rate will result in a 5.5 percent increase in tax revenues? Note: Round your answer to 2 decimal places.arrow_forward9. Ch.16: Graph the Laffer Curve. Suppose a nation collects taxes as a percent of income. The point on the graph below indicates the current tax rate on the horizontal axis, which runs from 0% on the left to 100% on the right. The vertical axis gives the government's tax revenue. Draw the nation's Laffer curve. i. ii. Suppose we are at the dot shown on the graph. Could we increase the tax rate and generate additional government revenue Tax revenue Rmax Tax rate (percent of income)arrow_forwardExcise taxes on tobacco and alcohol and state sales taxes are often criticized for being regressive. Although everyone pays the same rate regardless of income, why might this be so?arrow_forward
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